Moody’s upgraded five Italian covered bond programmes yesterday (Tuesday), raising their ratings by up to two notches, while the threat of a junking of MPS OBGs was formally removed ahead of their potential conversion into conditional pass-throughs.

The rating actions follow the assignment of Counterparty Risk (CR) assessments to the relevant issuers as part of wider changes to Moody’s bank rating methodology, resulting in new covered bond anchors for the programmes that are higher than the previous ones.

Moody’s noted that all but one of the six affected covered bond ratings have been raised to the maximum achievable rating based on their covered bond anchors, TPIs of “probable”, and Italy’s sovereign ceiling of Aa2.

The exception is the public sector covered bonds of Intesa Sanpaolo, which was upgraded from A2 to A1, with a Baa1 CR, and the rating agency said that this is constrained by the level of committed overcollateralisation (OC) for the programme.

Many other obbligazioni bancarie garantite (OBG) programmes rated by Moody’s are already at the Aa2 sovereign ceiling, and will therefore not benefit from notches of upgrade because of the CR assessments.

Also among Moody’s rating actions was the confirmation of the Baa3 rating of Banca Monte dei Paschi di Siena (MPS) covered bonds, which had previously been on review for downgrade, as a newly assigned B2 CR assessment raised their covered bond anchor covered by two notches. MPS is seeking consent from investors to convert its covered bonds from soft bullets to conditional pass-throughs in order to improve their ratings.

Moody’s said previously that the conversion could lead to MPS’s OBG rating be raised to Baa1 on review for upgrade on the back of its Timely Payment Indicator (TPI) assessment improving from “probable” to “very high”.

“Moody’s will only reflect the potential impact of this proposal on the ratings of the covered bonds after the noteholder meeting has decided on the proposal and after the proposal has been implemented and becomes effective,” Moody’s added after confirming the rating yesterday.

The first bondholder meeting will be held tomorrow (Thursday).

The full list of covered bond rating actions is:

- Banca Monte die Paschi di Siena: covered bonds confirmed at Baa3, with a B2 CR

- Banca Popolare dell’Emilia Romagna: covered bonds upgraded from A3 to A1, CR unpublished

- Banca Popolare di Milano: covered bonds upgraded from Baa1 to A2, with a Ba2 CR

- Credito Emiliano: covered bonds upgraded from A1 to Aa2, with a Baa1 CR

- Intesa Sanpaolo: public sector covered bonds upgraded from A2 to A1, with a Baa1 CR

- UBI Banca: covered bonds upgraded from Aa3 to Aa2, with a Baa1 CR

Analysts variously cited possible marginal gains in terms of regulatory treatment for Banca Popolare di Milano and Banca Popolare dell’Emilia Romagna OBGs, but Michael Spies, covered bond and SSA strategist at Citi, played down the impact of the upgrades.

“Peripheral covered bond markets have rarely seen a more positive rating momentum during the past few years than now,” he said, with the Italian Moody’s upgrades coming soon after many in Portugal and Spain. “Yet, Greece will still be the dominant theme for spread movements.

“While the upgrade of Italian covered bonds is a positive in itself and will again increase the investor base, we think that spread effects are relatively limited. Instead, macro-themes will be the key driver in the near term.”

Monday’s rating actions also featured upgrades to the senior unsecured debt ratings of some of the affected banks. Banca Popolare di Milano’s senior unsecured debt rating was raised from B1 to Ba3, Intesa Sanpaolo’s from Baa2 to Baa1, and UBI Banca’s from Baa3 to Baa2.